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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

A company's restructuring scheme converts Rs 30 crore of debt into shares at Rs 6 per share of face value Rs 10. Separately, the same company issues 1 lakh shares at Rs 8 each to a new private investor who is not a creditor, by cash subscription. Which statement is correct under section 53?

The creditor conversion is valid because section 53(2A) permits discounted shares to creditors on restructuring-based debt conversion. The cash issue to a non-creditor at Rs 8 against Rs 10 face value is void, and the company must refund the money with 12% interest per annum.

  1. ABoth issues are valid because both are at a discount linked to restructuring
  2. BThe creditor conversion is valid under section 53(2A); the cash issue to the investor is a discount issue that is void and attracts refund with interest at 12% per annumCorrect
  3. CBoth issues are void because face value is Rs 10
  4. DThe creditor conversion is void, but the cash issue is valid because Rs 8 is above half the face value

Explanation

Section 53(2A) protects discounted issue only to creditors on debt conversion under a statutory resolution plan or restructuring scheme per RBI guidelines. The investor is not a creditor converting debt, so Rs 8 against Rs 10 is a discount issue barred by section 53(1) and void under 53(2), with refund and 12% interest under 53(3). No half-value rule exists.

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